MARKET WATCH: Crude falls more than $3/bbl to 2-week low

Sam FletcherSenior Writer

HOUSTON, Nov. 14 -- The front-month crude futures contract dropped more than $3/bbl to the lowest level in nearly 2 weeks Nov. 13 on the New York market after the International Energy Agency in Paris reduced its estimates of global oil demand for the fourth quarter through 2008.

"The march to $100/bbl oil has fizzled," said analysts in the Houston office of Raymond James & Associates Inc.

Citing higher prices, weaker-than-expected economic data from both the US and the former Soviet Union, and delays in restocking European heating oil, the IEA reduced its projected fourth quarter demand for crude by 500,000 b/d. The organization also reduced its 2008 demand estimate by 300,000 b/d. IEA now estimates world demand for crude will average 85.7 million b/d in 2007, up 1.2% from 2006 levels. It's projecting demand for 87.7 million b/d in 2008, up 2.3% from 2007.

Reduction of IEA's demand estimates came just days before a special meeting of Organization of Petroleum Exporting Countries ministers scheduled Nov. 17-18 in Riyadh to discuss the market impact of a slowing economy and weak US dollar. IEA revisions "leave market participants in a greater guessing game as to whether a further increase in OPEC [production] is likely" at the group's regular meeting Dec. 5 in Abu Dhabi, said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland.

Media reports indicate the 12 OPEC members aside from Iraq and Angola produced 31.1 million b/d of crude in October, an increase of 350,000 b/d above September production. However, Raymond James analysts said, "Many still believe that the world is going to need more oil from OPEC over the next 2-3 quarters. US Secretary of Energy Samuel Bodman recently called for OPEC to increase production, citing lack of evidence of a slowdown in oil demand in the US."

Raymond James reported, "In the US, gasoline demand is still growing, but the growth rate has been slowed considerably. And with gasoline prices still playing catch-up to the recent run-up in crude, analysts worry that as gasoline prices rise, demand growth will continue to fall."

Jakob said, "With [benchmark US crude prices] stalling in the last 3 days of last week and correcting the first 2 days of this week, the technical momentum is starting to shift to the downside." He said the crude futures market "will need to show some strong rebounding action today or risk facing a confirmed momentum shift."

Energy pricesThe December contract for benchmark US light, sweet crudes fell $3.45 to $91.17/bbl Nov. 13 on the New York Mercantile Exchange. The January contract dropped $3.32 to $90.20/bbl. On the US spot market, West Texas Intermediate was down $3.45 to $91.18/bbl. The December contract for reformulated blend stock for oxygenate blending (RBOB) lost 9.98¢ to $2.32/gal on NYMEX. Heating oil for the same month retreated 8¢ to $2.50/gal.

The December natural gas contract declined 1.2¢ to $7.95/MMbtu on NYMEX. On the US spot market, however, gas at Henry Hub, La., escalated by 30.5¢ to $7.15/MMbtu. Raymond James analysts said, "Natural gas is hovering in the $8/Mcf range, as conflicting winter weather forecasts have left the market mixed."

In London, the December IPE contract for North Sea Brent crude dropped $3.15 to $88.83/bbl. The December gas oil contract fell $22 to $791.25/tonne.

The average price for OPEC's basket of 12 reference crudes lost $1.96 to $86.84/bbl on Nov. 13.